unpenalized 401k withdrawal for 1st time home buyers?

Question

Are there any federal or state programs that would allow a first time home buyer to withdraw from there 401k tax and penalty free if the money is going to a down payment on a house? or is there ANY way to pull that off?

Answer 1

Unfortunately, the first time homebuyer exception to the 10% penalty for early withdrawals applies only to IRAs, not 401(k)s. The whole distribution amount will be included with your other income and taxed at whatever rate your total income dictates. In addition, there is a 10% penalty for early withdrawal.

Please see the details below.....from IRS website
http://www.irs.gov/taxtopics/tc558.html

Answer 2

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RE:
unpenalized 401k withdrawal for 1st time home buyers?
Are there any federal or state programs that would allow a first time home buyer to withdraw from there 401k tax and penalty free if the money is going to a down payment on a house? or is there ANY way to pull that off?

Answer 3

First Time Home Buyer 401k

Answer 4

Sorry, but you cannot take a distribution from a 401(k) for the purchase of a home, first or otherwise. You can take a distro of up to $10k from an IRA without penalty (though the taxes are still due) but there is no such exception for a 401(k).

Additionally, most 401(k) plans don't allow early distributions except for certain emergency situations such as to pay medical bills that exceed 7.5% of your AGI or if you become totally and permanently disabled. Routine early distributions for any other purpose are prohibited as long as you are still employed by the plan's sponsor. In most cases you'd have to quit your job to take an early distro for a home purchase.

What you MIGHT be able to do with a 401(k) is take out a loan from the plan. Not all plans allow this but it is certainly worth asking. You'll have to pay interest on the loan but the interest is paid straight back into the plan so you're just paying yourself. The drawback to this is that if you leave the employment of the plan's sponsor you will have to immediately repay any outstanding balance or it will be re-classified as an early distribution and will be subject to tax and the 10% penalty.

Answer 5

You will still get the extra 10% tax on top of whatever your current tax rate is depending on your income. There's no way to evade that penalty even if it is for your first home purchase. Remember, your contributions to that were 'pre-tax'. So, your just getting taxed on income that you weren't taxed on before, plus an additional 10% penalty. You can elect to have tax withheld from the amount you withdraw to make it less scary come tax time. I had 40% withheld to be on the safe side. Didn't get much back at the end of the year.
It is up to your individual plan to either allow it or not. Most 401k plans call it a "hardship" withdrawal. You'll have to check with your plan administrator to find out if it's an option. There's more information in the link below for other federal requirements.

Answer 6

I know you can withdraw up to 10K from an IRA (roth or regular) for purchase of a home if you are a first time home buyer, but I searched and searched and this exception does not seem to apply to 401k's. Possibly you could take out a loan againist your 401k to get around this. Maybe you could also talk to your employer and see if they will let you somehow roll your 401k into a regular IRA account, but short of quitting your job I doubt they will allow this.

Sorry, its a no - but maybe you could still take out a loan against the money.

Answer 7

401k First Time Home Buyer

Answer 8

Unpenalized 401k withdrawal for 1st time home buyers if you pay it back by april of the following year?